PERENCANAAN PAJAK INTERNASIONAL - BAGIAN - 4

Summary

This script delves into the concepts of taxation jurisdiction, exploring the principles that define how different nations impose taxes based on the origin and domicile of income. It explains the various jurisdictional frameworks, including source jurisdiction and domicile jurisdiction, as well as how tax treaties (P3B) allocate taxing rights. The script also discusses legal frameworks like Indonesia's constitution and tax laws, focusing on income types such as royalties, interest, and business profits. The detailed analysis includes sources of income, international tax principles, and credit systems for foreign taxes, offering a comprehensive understanding of global taxation dynamics.

Takeaways

• 😀 Jurisdiction refers to the territorial area where a law applies, and tax jurisdiction is the right of a country to tax the income of its citizens from both domestic and foreign sources.
• 😀 Jurisdiction is a country's authority to impose and enforce tax laws, as highlighted in the 1945 Constitution of Indonesia, specifically Article 23, Paragraph 2.
• 😀 Source jurisdiction is determined by 'source rules', which identify the criteria for a country to be entitled to tax income earned within its borders, whether the recipient is a domestic or foreign taxpayer.
• 😀 Indonesia's tax jurisdiction is based on two main elements: conducting significant economic activity and earning income sourced within the country.
• 😀 Domicile jurisdiction is based on the principle of 'benefit', meaning that the right to tax is linked to where the taxpayer benefits from the state's services like welfare, education, and infrastructure.
• 😀 The concept of tax jurisdiction within the context of tax treaties (P3B) can include full taxation rights, limited rights with tariff restrictions, or exemption from tax on foreign income.
• 😀 The 'source' approach to income categorizes it into two main types: production source (e.g., income from real estate) and payment source (e.g., income received from services or sales).
• 😀 For income tax purposes, the source of income can be determined based on where the income-generating assets or activities are located, such as land or business operations.
• 😀 Taxation on income for both domestic and foreign taxpayers involves determining the source of income, including interest, royalties, rents, and capital gains, and the corresponding taxation rights of each country involved.
• 😀 The determination of income source for specific financial activities, such as shares or securities, is based on where the issuer or paying entity is located, as well as where income-generating assets are physically located.

Q & A

What is the definition of jurisdiction in taxation?

Jurisdiction in taxation refers to the authority of a country to impose taxes on the income received or earned by its citizens, whether the income is sourced domestically or internationally.

How do Owen and Owong Muhana define the jurisdiction of taxation?

Owen (1980) and Owong Muhana (1991) state that the jurisdiction of taxation refers to the authority of a country to formulate and enforce tax regulations.

How is taxation jurisdiction in Indonesia defined according to the Constitution?

The jurisdiction of taxation in Indonesia is established by Article 23, Section 2 of the 1945 Constitution, which allows the country to enforce tax laws.

What are the two main principles of taxation jurisdiction mentioned in the script?

The two main principles are the source jurisdiction and the domicile jurisdiction. Source jurisdiction pertains to the origin of income, while domicile jurisdiction is based on the taxpayer’s residence or domicile.

What is the benefit principle in relation to domicile jurisdiction?

The benefit principle states that the right to tax arises from the benefits a taxpayer receives in terms of welfare, infrastructure, education, and government services in the country of their domicile.

How is the concept of taxation jurisdiction addressed in Indonesia’s Income Tax Law (UU PPH)?

The concept of taxation jurisdiction is outlined in Article 2, Section 3 of the Indonesian Income Tax Law No. 36 of 2008, which deals with both individual and corporate income tax obligations based on residency or domicile.

What are the three types of taxation rights in Double Taxation Agreements (P3B)?

The three types of taxation rights in P3B are: (1) Full taxation right, where the foreign country can fully tax income sourced from its territory; (2) Limited taxation right, where the foreign country can tax income with certain restrictions; and (3) Tax exemption, where the foreign country waives its right to tax income from its territory.

What is the difference between the production-based and payment-based approaches in identifying income sources?

The production-based approach identifies the source of income as the country where the income-producing asset (e.g., real estate) is located. The payment-based approach, on the other hand, considers the country where the payment is made for income or services.

How does the script define the source of income for various types of earnings?

The source of income is determined based on the nature of the earnings. For example, income from dividends or securities is taxed in the country where the company issuing the securities is based, while rental income from immovable property is taxed in the country where the property is located.

What is the significance of Article 24, Section 3 in Indonesia’s Income Tax Law regarding foreign tax credits?

Article 24, Section 3 of Indonesia's Income Tax Law provides guidelines for determining the source of income to calculate foreign tax credits, including rules for income from dividends, interest, royalties, and other types of earnings.